The OPEN Act: significantly flawed, but more salvageable than SOPA/PROTECT-IP

Eric Goldman breaks down the OPEN Act, legislation that was unveiled last week …

From time to time, we will be running posts from Eric Goldman's Technology & Marketing Law Blog. Sometimes they will look similar to other articles appearing on Ars; other posts will be more "bloggy" in nature. This is one of the latter.

Sen. Ron Wyden (D-OR) and Rep. Darrell Issa (R-CA) have released a draft of OPEN: Online Protection & Enforcement of Digital Trade Act, intended as an alternative to SOPA/PROTECT-IP. (See my prior posts opposing SOPA and linkwrapping the discussion.) Unlike SOPA's disgustingly blatant rent-seeking, which was such an over-the-top abuse of the legislative process that it did not (and could not) support a principled or even intelligent conversations about it, OPEN provides a useful starting point for a sensible conversation that could actually lead to acceptable compromises.

For that reason alone, I think Congress should immediately stop all work on SOPA/PROTECT-IP and redirect that energy towards vetting this proposal. Having said that, for reasons I'll explain in a moment, I continue to believe the assumptions underlying SOPA/PROTECT-IP and OPEN are misguided, meaning that forging a compromise from OPEN’s more sensible proposal may be tricky.

Before I get further into substance, two process notes:

Therefore, until the rightsowners offer us more than the trumped-up-BS-already-discredited statistics, I'm still not clear on the problem, how bad it is, how any legislative solution would remediate that problem, and if the collateral consequences of the effort to remediate the problem are greater or less than the problem itself.

First, SOPA was the product of rent-seekers who were talking only amongst themselves and legislators tethered to their campaign contributions. The drafting process was disturbingly closed-door and exclusionary, exactly the kind we wish didn't take place in our representative democracy. In contrast, the OPEN sponsors want to have a dialogue about their ideas. In support of that, they have posted the draft to a website that allows comments and discussion. This is the way our democracy should work. Why is such an open process the exception instead of the rule?

Second, OPEN is a comparatively svelte 18 pages focused mostly on one core concept, compared to SOPA's 78-page monstrosity that advanced about a dozen different substantive proposals. I can't tell you the number of times I've seen very smart people stymied to keep all of SOPA's moving parts separate, and the failure to do so meant that they were conflating different parts of the statute in ways that prevented productive discussion. (Just two examples: The Colbert Report, where Zittrain mostly focused on SOPA's felony streaming provision while his counterpart was mostly talking about the cutoff provisions; and Business Insider's infographic where the felony streaming sanction was presented as a remedy to the cutoff provisions). By reducing the number of topics at issue, OPEN substantially reduces the chance that policy discussants will simply talk past each other.

An overview

The law contemplates that rightsholders can file a petition against rogue websites at the ITC, an independent federal agency best known for its adjudication of certain patent disputes. In response to the rightsowners’ petition, the ITC will conduct an administrative adjudication. If the ITC determines that the website is a rogue website, then (1) the website is required to cease its conduct (not sure how enforceable that is), (2) the site also will be subject to any other unspecified consequences following from its determination as a rogue actor, and (3) most importantly, the rightsowner can take the ITC determination to payment service providers (PSPs) and ad networks and have them cut off the flow of money to the rogue website. The PSPs and ad networks would be protected by several immunities for trying to comply with the orders or their other efforts to protect the public.

This makes OPEN similar to SOPA in that it seeks to cut off funds flowing to rogue actors. However, among other key differences, PSPs and ad networks have no legal obligations until the ITC makes a ruling. In contrast, SOPA imposed cutoff obligations on PSPs and ad networks based merely on rightsholders’ unsubstantiated assertions.

What's good

Substantively, some of the things I liked about OPEN:

It situates the discussion about "rogue websites" in foreign trade policy. This fixes SOPA's overinclusive application to both domestic and foreign actors. However, if we really think rogue websites are a transborder enforcement problem, there are many other trade policy solutions that might be better options to consider—the most obvious being transborder enforcement coordination like the FTC does with its foreign counterparts.

OPEN doesn’t touch DNS or search engines. SOPA had the potential to destroy the DNS and to jeopardize search engine functioning. OPEN sidesteps both pitfalls.

OPEN builds in some due process before any formal legal obligations attach. As we've recently seen, due process is actually quite important, and we suffer from its absence. I say “some” due process because I’m not sure how much due process will attach in practice. For example, I have some concerns about the notice provision--not every targeted website will receive notice of the ITC investigation. However, I did like that any website the ITC labels as rogue can correct any identified problems, reapproach the ITC and ask it to remove the “rogue” determination.

The definition of rogue website is tightened up substantially. It requires three elements:

A "non-domestic domain name," which requires that the registry, registrar and registrant all have to be located outside the US (I'm not sure what "located" means in this context). Venkat asked me what happens to a .com registered with a foreign registrar; I believe OPEN does not apply to this domain name.

Conducting business in the US; and

"Has only limited purpose or use other than engaging in infringing activity and whose owner or operator primarily uses the site to willfully engage in infringing activity."

The last element, in particular, is quite restrictive by requiring willful infringement. The meaning of the word "willful" is notoriously murky (see, e.g., the multitudinous Supreme Court cases over the word), so the statute would be improved by using a more detailed synonym. No matter what, though, willful is a high scienter level that should easily exclude most legitimate players. The statute further expressly excludes any sites that:

Follow good notice-and-takedown procedures

Qualify for 17 USC 512 (the DMCA online safe harbors) [this means that the statute sits next to 512 instead of rendering 512 moot like SOPA threatened to do], or

Distribute "copies that were made without infringing a copyright or trademark." I’m not 100% sure what this means. It apparently excludes websites reselling goods covered by the First Sale doctrine. I presume that the exclusion includes sites that sell legitimate knock-off goods, such as replicas of goods that aren’t protected by copyrights or trademarks.

If a PSP or ad network fails to comply with an ITC order, the only consequence is that the DOJ can seek injunctive relief. Rightsowners do not have a private cause of action in those cases. As discussed below, this doesn't eliminate all PSP/ad network exposure to rightsowners, but rightsowners can't introduce evidence of ITC orders in any civil suits they bring against PSPs or ad networks.

On the trademark side, it expressly limits its applicability to counterfeiting (although there is a erroneous cross-reference in the draft). Presumably, dilution or garden-variety trademark infringement disputes don't qualify under the statute.

What's not good

Substantively, some of the things I don't like about OPEN:

OPEN still contemplates reestablishing a "fortress USA." Fortress USA marginally makes sense regarding the shipment of physical goods across geographic borders. It makes zero sense for digital bits zinging around the borderless network.

In particular, because OPEN would burden only US-governed PSPs and ad networks, it may drive websites—including legitimate websites who want to reduce their risk of being mistargeted—to shift their business to foreign-based PSPs and ad networks. If lots of businesses make a switch based on these concerns, OPEN could counterproductively result in net financial losses for the US economy.

Similarly, foreign websites can opt-out entirely of the ITC process by consenting to US judicial jurisdiction. I like the idea of an opt-out, but imagine if other countries offered the same quid-pro-quo of allowing US websites to opt-out of some nasty foreign process so long as the websites consent to jurisdiction in their countries. I think we’d be outraged and insulted; which is how I would expect foreign countries to view this quid-pro-quo. Cf. Venkat's recent post on Facebook v. Faceporn. Then again, other countries might think it’s a pretty good idea, leading to a proliferation of transborder quid-pro-quo jurisdictional offers.

Designating the ITC to conduct the investigations is a little odd. First, the ITC is an administrative agency, not a federal court. I don't fully understand all of the implications of administrative vs. judicial review, but I believe there are substantial procedural differences that could lead to important substantive differences. Second, the ITC has been gamed in the patent world (see, e.g., my colleague Colleen Chien's research on the ITC explaining how the ITC hears many US company vs. US company disputes), so I fear similar gaming will emerge. For example, a rightsowner chasing a rogue website could simultaneously pursue a domestic court action, a foreign court action and an ITC proceeding. How would these types of parallel proceedings play out in practice? We’re still trying to resolve the parallel proceeding problems in patents.

Like SOPA, the bill covers copyright infringement, trademark infringement *and* 1201 circumvention. I don't understand why the circumvention issue is getting equal billing or how often transborder circumventions are a real problem. Seeing how 1201 circumvention lawsuits have devolved into anti-competitive enforcements, picking up the circumvention piece could increase the risk of competitive misuse of the statute.

Again like SOPA, the definitions are vague. Consider, for example, the definition of Internet advertising service: "The term Internet advertising service means a service that serves an online advertisement in viewable form for any period of time on an Internet site." Hmm...what does that mean? Notice that the definition doesn't directly distinguish between third-party ad networks and sites that sell their own ads. I think in practice sites that sell their own ads drop out of the statute, so one possible implication is that more sites will ramp up their own ad sales. (This is doubtful, but just throwing the possibility out there). I think the focus on "viewable" is interesting; are audio-only ads excluded? And what does it mean to "serve" content? This contemplates a specific technological interaction that I don't fully understand today and will almost certainly evolve over time.

Why I’m not enthusiastic about OPEN

Even though OPEN is worth discussing intelligently, unlike SOPA, I believe it's based on two underlying assumptions that aren’t fixable.

While OPEN can’t really be fixed to resolve my two structural concerns, my hope is that the discussion about OPEN will force rightsowners to provide credible evidence of harms that they or consumers are suffering.

First, like SOPA, OPEN assumes there is a problem with foreign rogue websites that needs to be solved. I'm not saying there isn't, but the policy discussions have been startlingly devoid of reliable and credible facts demonstrating the nature and scope of the problem.

Instead, the evidence in support of a rogue website "problem" typically consists of two main threads: (a) people are dying from counterfeit drugs, and (b) bad guys are "stealing" our stuff. With respect to the former, I've never seen anything more than ad hoc assertion; but if there’s a real problem, counterfeit drugs can be fixed with a highly targeted solution. With respect to the latter, it's hard to give those arguments much credit. After all, all of rightsowners’ arguments are inherently self-interested: it's in their financial interest to say that they would like to make more money than they are making. It's also in their interest to bemoan broad sectoral changes in the economy as evidence that someone is capturing money they think they are entitled to (and to use rent-seeking to thwart those broad sectoral changes). More importantly, there is lots of evidence that a lot of rightsowners are making a lot of money today, both via the Internet and more generally. So it's hard to break out the quantity of actual economic losses that rightsowners are truly suffering when those claims are intermingled with rightsowners’ general rent-seeking efforts.

Therefore, until the rightsowners offer us more than the trumped-up-BS-already-discredited statistics, I'm still not clear on the problem, how bad it is, how any legislative solution would remediate that problem, and if the collateral consequences of the effort to remediate the problem are greater or less than the problem itself. OPEN does nothing to fill the void of supporting foundational evidence of the problem, so it's hard for me to be enthusiastic about its solution.

Second, and more importantly, attacking the money supply to supposed bad actors remains too blunt an instrument. I may be truly on my own on this point, as many people I respect—including, notably, Rep. Lofgren (D-CA)—are prepared to embrace the policy solution of cutting off money flows. However, by embracing an attack on the movement of money, OPEN replicates one of SOPA's sins. If a player is engaged in legitimate and illegitimate activity and its money supply is cut off, both activities go down the tubes. In contrast, one of the positive aspects of 17 USC 512(c) and (d) is that they require the copyright owner to identify infringing items and target only those items. Giving rightsowners a remedy that would affect an entire site for only some items on the site goes too far.

The OPEN bill tries hard to minimize overbreadth by narrowly defining the targeted websites. Perhaps this definition is narrow enough that there won't be much collateral damage. However, in practice, regulating money flows nevertheless could have pernicious effects in the field. A PSP or ad network drawn into an ITC proceeding frequently will “voluntarily” choose to toss the targeted website before the ITC proceeding reaches its conclusion—even if the ITC proceeding would have rejected the challenge. Furthermore, rightsowners still will send cutoff notices to PSPs/ad networks without filing any ITC petition, and the PSPs/ad networks will often honor them as a way of preempting an ITC proceeding.

What this teaches me (in combination with the Elsevier v. Chitika case) is that PSPs and ad networks need robust statutory immunities which are not based on a notice-and-takedown scheme. On the trademark side, the need for an immunity became clear after the sloppy language in Gucci v. Frontline. On the copyright side, 512 doesn’t cover PSPs and ad networks, probably because in a million years the safe harbor drafters never thought PSPs and ad networks would be liable for third party infringing activity in the first place. Now that we've seen copyright law and trademark law creep much further than we could have imagined in 1998, we should plug this liability hole completely. If OPEN proceeds, it should have a broad-based immunity for PSPs and ad networks with the idea that rightsowners are getting a specific remedy against them in the new law.

While OPEN can’t really be fixed to resolve my two structural concerns, my hope is that the discussion about OPEN will force rightsowners to provide credible evidence of harms that they or consumers are suffering (no more self-serving hype, please), and that such evidence will force us to think carefully about how "rifle shot" solutions (as opposed to shotgun solutions) can ameliorate those harms. If we have a discourse that even slightly resembles this ideal, then OPEN will be successful no matter what final outcome we reach.

Eric Goldman is an associate professor of Law at Santa Clara University School of Law and directs that school's High Tech Law Institute. You can read more of his work at his website.

30 Reader Comments

'While OPEN can’t really be fixed to resolve my two structural concerns, my hope is that the discussion about OPEN will force rightsowners to provide credible evidence of harms that they or consumers are suffering (no more self-serving hype, please), and that such evidence will force us to think carefully about how "rifle shot" solutions (as opposed to shotgun solutions) can ameliorate those harms. If we have a discourse that even slightly resembles this ideal, then OPEN will be successful no matter what final outcome we reach.'

I think that if you want this to happen we have to address a heck of lot of other things first. Rampant anti-intellectualism, lobbying practices, the state of debate in media,the state of debate in political forums to name but a few.

I mean what you are asking for there is the pipe dream of everyone who has ever studied a subject then watched as people who haven't studied that field discuss it.

Reading your conclusion made me a bit sad, because what you have written is so hopeful yet I know that as a director of a tech policy institute your life must be one of constant frustration when reading the news!

I agree with your central thesis, that OPEN, while less flawed than SOPA/PROTECT-IP, still has major problems that need to be addressed.

My overall feeling is that any legislation aimed at stopping piracy online needs to do so:

1) Without infringing upon the rights of anyone;2) Without inconveniencing creative types, content owners (regardless of how they obtained legal ownership of the content), and end users;3) Without facilitating price-gouging.

To me, the e-commerce functionality of the Internet in general should make it very, very easy for people to legally purchase content at a reasonable price. The content itself should be delivered in a reliable, usable format.

Also, if we're going to use legislation to guide content-based commerce, how about some rights protections for content creators against greedy distributors?

Although I agree with all of your points in this article, and agree that companies in general haven't provided credible evidence, could you define what exactly would be credible evidence? Without this definition we can get into a he said she said about credibility and totally wreck the discussion you have so eloquently brought here. Thanks!

I dont really understand the necesity for any of the laws shown here,exept for something of a conversational piece amongst lobbyists,and lawmakers - to have something to do.

As if 'take down' orders are not enough. I question the reason copyrights holders/ip holders do not just have that power if the site in question is part of something foreign ?

It would seem all too obvious that the whole schematic of these laws is to farm IP INTO ITC !. For example how do you 'comply'(this is the most degenerent generality of law emplementation - if you don't have a physical way to implement something just use 'comply') with something that you may be completely indifferent of ? Does the next phase mean 'registering all business transactions including where,and when you display ads - or the constituent(s),and transactions of all your business dealings with the ITC !

This would be a subtle way of creating subtifuge among contigous somewhat un imperiled business parties. Where is a single day,or week,it would be happy sailing for every one concerned.

I dont like any of them. The problem of creating some kind of due process to begin with comes from having that process in place. Just using the 'big name' ITC does not do a whole lot. But just glom over the whole idea in the 'chosen one' scenario of 'government knows best'.

There needs to be a special court for all Internet related litigation.

Lawyers are trained to act with the ITC,just as much different,as they are to interact for the FTC,and different lawyers for the FCC etc. It is just an unfettered bunch of glom. Without a recognizable iternery of process,and a court that adjudicates all effected jurisdiction.

You can of course make proclamations in all of what common law is good for to affect you court of jurisdiction,. It still does not make a court of jurisdiction.

ITC certainly is no court. And is not a jurisdiction to plenty of legal effect.

Administrative law is just a bunch of bobble head regulation.

Lawmakers need to be smart enough,that they will create a court of legal effect. Open to jurisdiction,for litigation in any of these matters. And anybody,can take a claim to. If its internet,then litigate it in that sort of court. Make laws for that sort of court.

Take down orders are the same as they have been. addition: "five days of which to 'comply. .. A couple of toe streches in hong kong. Or singapore. Or Qautar. And your done . This is the reason using the ITC really would 'crack me up'. And I wouldn't mean on 'that good side'.

This is -still- an effort rooted in bad assumptions, wielding remedies that are still inappropriate, in cases that are still too broadly defined. And solely for the protection of interests that are not in fact facing the threats and damages they claim.

I disagree that there is intelligent discussion to be engaged about it, and I resent lawmakers for continually revisiting this and giving it this level of attention.

Although I agree with all of your points in this article, and agree that companies in general haven't provided credible evidence, could you define what exactly would be credible evidence? Without this definition we can get into a he said she said about credibility and totally wreck the discussion you have so eloquently brought here. Thanks!

Even actual evidence would be a start. Subjecting the research to peer reviews, and outside analysis of methodology would be much better.

On that note, anyone else think the US legal system's getting a bit crufty? Maybe it's time to rewrite the code base (e.g. revert back to the constitution, then start slathering crap on again).

No, I don't think it should happen. Certain areas of the law are where they should be, and shouldn't be scrapped. For example, the supreme court has ruled that, to be guilty of slander or libel, the following must be true:1) The speech must be false2) The speaker must know the speech is false3) The speaker must speak for the purpose of harming a person or corporationThat is pretty close to where it needs to be and doesn't need changing.

If congress wants to get rid of software patents, they should write a law that does that.If they want to get rid of business method patents, they should write a law that does that.If they want to get rid of patents on medical procedures, they should write a law that does that.The power is in congress' hands. The problem is no one can agree on what the law should be, so we get the status quo, which often involves the supreme court deciding these things.

Another area of the law that should be overhauled is the tax code. "Scrapping" the tax code could be good. But it will never happen. Special interests paid lots of money for that tax code - they won't let it be scrapped so easily. And there's evidence that it might be bad for the country too by changing the law too quickly.

It's still a pricing problem. The goods in question are priced higher than the market will bear, and thus a black market is sustained.

While you might get me to feel some sympathy for the entertainment industry (if you try to convince me, 24/7, until 2025), I'll never feel any for companies like Gucci. If someone can sell a knock-off of a $500 bag for $50 which is good enough for so many consumers that it it's deemed a threat, then the original product is overpriced. At $50 those 'counterfeiters' are still making money. Gucci can too. Before anyone makes any argument like "that doesn't include the cost of designing the bag" -- if it costs so much that the product needs to marked up 1000%, then perhaps Gucci needs some business advice. We're not talking about designing microchips here -- grab a random contestant from Project Runway and two days later you'll have a new design.

Although I agree with all of your points in this article, and agree that companies in general haven't provided credible evidence, could you define what exactly would be credible evidence? Without this definition we can get into a he said she said about credibility and totally wreck the discussion you have so eloquently brought here. Thanks!

Anything with a feedback and review process (by both the public and experts in the field) would be helpful. It would take time to collect such data, of course -- perhaps years -- but the legislative process isn't there to appease the monetary desires of the entertainment industry; it's there to protect the interests of the public, which includes a functioning and thriving internet.

It's still a pricing problem. The goods in question are priced higher than the market will bear, and thus a black market is sustained.

While you might get me to feel some sympathy for the entertainment industry (if you try to convince me, 24/7, until 2025), I'll never feel any for companies like Gucci. If someone can sell a knock-off of a $500 bag for $50 which is good enough for so many consumers that it it's deemed a threat, then the original product is overpriced. At $50 those 'counterfeiters' are still making money. Gucci can too. Before anyone makes any argument like "that doesn't include the cost of designing the bag" -- if it costs so much that the product needs to marked up 1000%, then perhaps Gucci needs some business advice. We're not talking about designing microchips here -- grab a random contestant from Project Runway and two days later you'll have a new design.

The issue I have with your argument is not that you left out the cost to design the bag, but rather the value the bag provides beyond the sum of its materials. People buy Gucci/etc bags for the exclusivity. They're expensive for the sake of being expensive. In that sense, they are not "overpriced" simply because a decent knockoff can be crafted for far less. The counterfeits are a threat because they ruin this exclusivity factor. If everyone could afford andugly $1000 bag, then nobody would want it.

If they were overpriced, then Gucci could make more money by reducing the price which is doubtful.

It's still a pricing problem. The goods in question are priced higher than the market will bear, and thus a black market is sustained.

While you might get me to feel some sympathy for the entertainment industry (if you try to convince me, 24/7, until 2025), I'll never feel any for companies like Gucci. If someone can sell a knock-off of a $500 bag for $50 which is good enough for so many consumers that it it's deemed a threat, then the original product is overpriced. At $50 those 'counterfeiters' are still making money. Gucci can too. Before anyone makes any argument like "that doesn't include the cost of designing the bag" -- if it costs so much that the product needs to marked up 1000%, then perhaps Gucci needs some business advice. We're not talking about designing microchips here -- grab a random contestant from Project Runway and two days later you'll have a new design.

The knock off Gucci bags harm both Gucci and consumers. I am not talking about the "inspired" by crap either I am talking about the knock off Gucci bag that uses the real Gucci Trademarks. Gucci sells them at a price point were they feel they sell enough to make the profit margins they are looking for. Consumers that buy the legit Gucci bags buy a product the preceive as having the value of that purchase price. Selling 50 dollar knock offs artificially devalues the product that Gucci spent time in building and the marks the spend time in building along with their consumers that spent money on the product. It hurts us all because the Guccis of the world have no incentive to innovate anymore to bring out new designs or new materials when they know that their product and its marks are going to be violated days after introduction.

To me, the e-commerce functionality of the Internet in general should make it very, very easy for people to legally purchase content at a reasonable price. The content itself should be delivered in a reliable, usable format.

Also, if we're going to use legislation to guide content-based commerce, how about some rights protections for content creators against greedy distributors?

I am at a loss on how its even possible to price gauge on the internet especially for the majority of the products we are talking that would be effected by this law. Price Gouging generally refers to neccisaties of life being priced several times normal market value due to a temporary shortage in a local area. Think huricane hits and a hole sells a gallon of gas for 15 dollars in Miami.

I have never heard it refered to entertainment, luxury items, items with a "global" shortage, or items that have a legal monopoly like patents, trademarks and copyrights. Never mind that if piracy went away tommorow the music studios can not exactly raise the price to the lattest black eye peas song on Itunes to 30 dollars. The consumer would reject that price out of hand.

The knock off Gucci bags harm both Gucci and consumers. I am not talking about the "inspired" by crap either I am talking about the knock off Gucci bag that uses the real Gucci Trademarks. Gucci sells them at a price point were they feel they sell enough to make the profit margins they are looking for. Consumers that buy the legit Gucci bags buy a product the preceive as having the value of that purchase price. Selling 50 dollar knock offs artificially devalues the product that Gucci spent time in building and the marks the spend time in building along with their consumers that spent money on the product. It hurts us all because the Guccis of the world have no incentive to innovate anymore to bring out new designs or new materials when they know that their product and its marks are going to be violated days after introduction.

While I find the concept that Gucci has some kind of positive innovation in designs and especially materials to be quite humorous, I agree with your overall argument. Trademarks are and should be protected by law, but I still feel no sympathy for Gucci, Prada, Luis Vutton, Hermes, etc...

I am at a loss on how its even possible to price gauge on the internet especially for the majority of the products we are talking that would be effected by this law. Price Gouging generally refers to neccisaties of life being priced several times normal market value due to a temporary shortage in a local area. Think huricane hits and a hole sells a gallon of gas for 15 dollars in Miami.

I have never heard it refered to entertainment, luxury items, items with a "global" shortage, or items that have a legal monopoly like patents, trademarks and copyrights. Never mind that if piracy went away tommorow the music studios can not exactly raise the price to the lattest black eye peas song on Itunes to 30 dollars. The consumer would reject that price out of hand.

I don't see how selling gas during a shortage is price gouging. Market value is $15/gallon because of the shortage. The alternative is running out of gas sooner.

That said, when it comes to media, there's more of an argument for price gouging. Why do eBooks cost as much or more than physical books? Why do movie downloads cost $10 when I can buy a DVD for barely more? I think the profit margins must be quite high.

Neither law is necessary in the slightest. The DMCA route of 'notify that something is copyrighted' then sue if it is not removed is the correct route here.

The real thing that need to be done is to CLOSE YOUR EARS TO THE WHINY CONTENT OWNERS! Seriously, 90% of the time they are just pissed that people are not paying multiple times for the same content on multiple platforms.

The issue I have with your argument is not that you left out the cost to design the bag, but rather the value the bag provides beyond the sum of its materials. People buy Gucci/etc bags for the exclusivity. They're expensive for the sake of being expensive. In that sense, they are not "overpriced" simply because a decent knockoff can be crafted for far less. The counterfeits are a threat because they ruin this exclusivity factor. If everyone could afford andugly $1000 bag, then nobody would want it.

If they were overpriced, then Gucci could make more money by reducing the price which is doubtful.

Most studies on the matter I've seen suggest the very opposite. Knockoffs increase the desirability of genuine articles. The people that buy knockoffs WANT to be part of that group, but aren't able to.

Most studies on the matter I've seen suggest the very opposite. Knockoffs increase the desirability of genuine articles. The people that buy knockoffs WANT to be part of that group, but aren't able to.

Yes, an increase in the desirability for the genuine articles in those who bought the knockoffs but the study did not look into the desirability for the genuine articles for those who had bought the genuine articles or those had hadn't bought either the genuine articles or the knockoffs (you know the customers or the potential customers).

I am at a loss on how its even possible to price gauge on the internet especially for the majority of the products we are talking that would be effected by this law. Price Gouging generally refers to neccisaties of life being priced several times normal market value due to a temporary shortage in a local area. Think huricane hits and a hole sells a gallon of gas for 15 dollars in Miami.

I have never heard it refered to entertainment, luxury items, items with a "global" shortage, or items that have a legal monopoly like patents, trademarks and copyrights. Never mind that if piracy went away tommorow the music studios can not exactly raise the price to the lattest black eye peas song on Itunes to 30 dollars. The consumer would reject that price out of hand.

I don't see how selling gas during a shortage is price gouging. Market value is $15/gallon because of the shortage. The alternative is running out of gas sooner.

Ahhh the internet Randian. Thankfully most people find it repugnent for a person to profit greatly on the neccesaties of life during a short term local shortage due to a disaster. That is why laws against Price gouging cover the neccesaties of life.

Quote:

That said, when it comes to media, there's more of an argument for price gouging. Why do eBooks cost as much or more than physical books? Why do movie downloads cost $10 when I can buy a DVD for barely more? I think the profit margins must be quite high.

First, you can vote with your wallet. You don't need media in order to live.

Second, the cost of material is a small portion of the actual cost of what you are buying. Not too many people buy a book because of the paper itself (not talking about people that prefer to read on paper I am talking the actual paper) or because of the plastic disk. They purchase these products for the IP contained on them. The IP along with value add is what cost the most. To the producers that charge the same price they look at like this they are eating the 3.50 it cost them to produce the physical dvd, ship it and the returns but the IP is still worth 10 dollars.

Never mind how is it price gouging when you are talking about less than 100 percent difference?

Most studies on the matter I've seen suggest the very opposite. Knockoffs increase the desirability of genuine articles. The people that buy knockoffs WANT to be part of that group, but aren't able to.

Yes, an increase in the desirability for the genuine articles in those who bought the knockoffs but the study did not look into the desirability for the genuine articles for those who had bought the genuine articles or those had hadn't bought either the genuine articles or the knockoffs (you know the customers or the potential customers).

This. And I don't believe just about anything people say in these types of "studies". Of course people that buy a knock off Gucci say they would buy a real Gucci other wise they would not buy the knock off. That is far short of you know actually buying that Gucci.

Here is the thing. I have some luxurary items I like to purchase. If I start to see people wearing knock offs of these items at even Target I will not be buying that item in the future. I buy these items for the exclusivity. Once it looses that exclusivity there is no point in buying them at the price point I pay at that point I can find better value other places. I normally shop for value but will pay extra for exclusivity even if its no longer a value.

This. And I don't believe just about anything people say in these types of "studies". Of course people that buy a knock off Gucci say they would buy a real Gucci other wise they would not buy the knock off. That is far short of you know actually buying that Gucci.

Here is the thing. I have some luxurary items I like to purchase. If I start to see people wearing knock offs of these items at even Target I will not be buying that item in the future. I buy these items for the exclusivity. Once it looses that exclusivity there is no point in buying them at the price point I pay at that point I can find better value other places. I normally shop for value but will pay extra for exclusivity even if its no longer a value.

That's working on the assumption that knocks off kill the exclusivity. However, I think in virtually all cases, everyone knows the fake is a fake (or at least, the people that couldn't tell a fake probably wouldn't know the name at all). With that mindset, it may be more like small children pretending. If little Joe pretends to be an astronaut, does that make astronauts less cool or more cool?

To those who implied disincentivating the Guccis of the world is a disadvantage to all of society - is it really?Should we protect "innovation" when it only means overcharging for products for the sake of being exclusive? We are not talking research intensive goods here, stuff that actually breaks new technological ground and as such has significant sunk costs.

Although I agree with all of your points in this article, and agree that companies in general haven't provided credible evidence, could you define what exactly would be credible evidence?

That was the only part of the article I found completely baffling. There is no evidence. If there were, it would have been presented by now. The lack of evidence is why we keep being fed emotional arguments are obviously inflated bullshit figures.

I have absolutely no doubt the copyright industry has done extensive studies and found their position baseless. If there were evidence to support their claims, we'd have it.

If someone can sell a knock-off of a $500 bag for $50 which is good enough for so many consumers that it it's deemed a threat, then the original product is overpriced. At $50 those 'counterfeiters' are still making money. Gucci can too.

Oh, but you're missing what people are paying for! It has nothing to do with "value" or the manufacturing cost of the product - people buy that shit because it's expensive. Nobody but the mentally disabled will pay $20-$50 for a $500-$1000 Gucci handbag and think it's genuine. They want people to think they've paid $500-$1000 for a handbag. If they can do that without actually paying that much, all the better.

Consumers that buy the legit Gucci bags buy a product the preceive as having the value of that purchase price.

Bullshit. It's a fucking handbag, not the cure for cancer. People that buy the genuine article are flaunting their wealth, not making rational "value" judgements of something to hold your purse and iPhone. A handbag doesn't magically become more useful or have more functionality because you paid a retarded amount for it.

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Selling 50 dollar knock offs artificially devalues the product that Gucci spent time in building and the marks the spend time in building along with their consumers that spent money on the product. It hurts us all because the Guccis of the world have no incentive to innovate anymore to bring out new designs or new materials when they know that their product and its marks are going to be violated days after introduction.

Double bullshit. There's nothing "innovative" about a Gucci handbag. People don't pay stupid amounts of money to Gucci for innovation, they pay it for the image. Gucci handbags cost exactly the same amount of time and money to create as any other handbag - you're paying for a label.

Jesus christ, I can't believe I'm arguing with a dog on the internet about how "innovative" Gucci handbags are. "Innovative"? Really? Wow.

Second, the cost of material is a small portion of the actual cost of what you are buying.

For physical, tangible goods, this is true - but is still not the entire picture...

There are two other costs for tangible goods that do NOT apply in the same way, or amount, to any intangible versions:

Cost of duplication.Cost of distribution.

For intangible goods - (information) - (books/music etc.), only the cost of production, and any, (negligible, compared to tangible goods), cost of distribution are ultimately what matters - duplication is essentially 'free', as part of the distribution process itself...

We have some industries, whose costs are DECREASING heavily, for intangible goods, and yet the price they charge is not...

The ONLY reason they can get away with it, is because they have been granted a monopoly on the products they sell, for both tangible AND intangible versions. But such a monopoly is an ARTIFICIAL creation, which should only exist at the behest of the people who buy their goods in the first place - which they are now trying to bypass completely, and is only working because the US government has now become so corrupted... (I don't think there's any other way of describing it).